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Strategic Risk Management—— Execution Frameworks“Value-Based Management” Assume you are presenting (as a consultant) the concept of...

Strategic Risk Management—— Execution Frameworks“Value-Based Management”

Assume you are presenting (as a consultant) the concept of Value-Based Management to the executive team at a company that is considering implementing it for strategy execution. The CFO asks the following question: How are benefits of using DuPont ROI analysis which breaks down ROI into Return on Sales x Asset Turnover? In one short paragraph, please describe how you would reply to this question.

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Expert Solution

Benefits of using DuPont analysis in accordance with return on investment analysis which will be breaking down return on investment into return on sales X asset turnover are as follows-

A.DuPont analysis will be calculated after consideration of profit margin associated with the company so it is trying to include the markup associated with the investment in various projects.

B. This ratio of return on sales into asset turnover will be finding out the operational efficiency of the company according to the DuPont analysis and the higher the ratio the better it is for the company.

C.DuPont analysis according to this ratio will be telling that how efficiently the company is generating profit in a relation to the top line of the company.

D.it will also be focusing upon the financial geaaring and the financial leverage and effect of those on the overall profit margins and the operational efficiency of the company.


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